WEST JAPAN RAILWAY COMPANY RAILWAY WEST JAPAN Annual Report 2018 WEST JAPAN RAILWAY COMPANY Annual Report 2018 Year ended March 31, 2018 Introduction Profile West Japan Railway Company (JR-West) is one of the six passenger railway transport com- panies created in 1987, when Japanese National Railways was split up and privatized. In our railway operations, which are our core business activity, our railway network extends over a total of 5,008.7km. Making the most of the various forms of railway asset value rep- resented by our stations and railway network, we are also engaged in retail, real estate, and other businesses. Contents Introduction ESG Section Financial Section 1 Profile 34 ESG Initiatives 50 Consolidated 10-Year Financial Summary 2 At a Glance 36 ESG Hightlight 52 Management’s Discussion and Analysis 4 Overview 38 Safety of Operations 6 Financial Highlights 40 Customer Satisfaction 54 Operational and Other Risk Information 41 Coexistence with Communities 62 Financial Statements Business Strategy and Operating Results 42 Human Resources / Motivation 68 Analysis of JR-West Operations 43 Global Environment 8 The President’s Message 71 Investor Information 44 Corporate Governance 12 Review of the Medium-Term Manage- 72 Consolidated Subsidiaries 48 Organizational Structure ment Plan 2017 74 Corporate Data 18 Medium-Term Management Plan 2022 Corporate Philosophy Safety Charter 1 We, being conscious of our responsibility for pro- We, ever mindful of the railway accident that occurred tecting the truly precious lives of our customers, on April 25, 2005, conscious of our responsibility for and incessantly acting on the basis of safety first, protecting the truly precious lives of our customers, will build a railway that assures our customers of its and based on the conviction that ensuring safety is safety and reliability. our foremost mission, establish this Safety Charter. 2 We, with a central focus on railway business, will 1 Safety is ensured primarily through understanding fulfill the expectations of our customers, share- and complying with rules and regulations, a strict holders, employees and their families by support- execution of each individual’s duty, and improve- ing the lifestyles of our customers, and achieving ments in technology and expertise, and built up sustainable growth into the future. through ceaseless efforts. 3 We, valuing interaction with customers, and con- 2 The most important actions for ensuring safety are to sidering our business from our customers’ per- execute basic motions, to rigorously enforce safety spective, will provide comfortable services that checks, and to implement flawless communication. satisfy our customers. 3 To ensure safety, we must make a concerted effort, 4 We, together with our Group companies, will consis- irrespective of our organizational affiliation, rank, tently improve our service quality by enhancing tech- or assignment. nology and expertise through daily efforts and practices. 4 When uncertain about a decision, we must choose 5 We, deepening mutual understanding and respect- the most assuredly safe action. ing each individual, will strive to create a company at which employees find job satisfaction and in 5 Should an accident occur, our top priorities are to which they take pride. prevent concomitant accidents, and to aid passengers. 6 We, acting in a sincere and fair manner in compli- ance with the spirit of legal imperatives, and work- ing to enhance corporate ethics, will seek to be a company trusted by communities and society. Cautionary Statement with Respect to Forward-Looking Statements This annual report contains forward-looking statements that are based on JR-West’s current • expenses, liability, loss of revenue, or adverse publicity associated with property or casualty losses; expectations, assumptions, estimates, and projections about its business, industry, and capital • economic downturn, deflation, and population decreases; markets around the world. • adverse changes in laws, regulations, and government policies in Japan; These forward-looking statements are subject to various risks and uncertainties. Generally, these • service improvements, price reductions, and other strategies undertaken by competitors such as forward-looking statements can be identified by the use of forward-looking terminology such as other passenger railway and airline companies; “may,” “will,” “expect,” “anticipate,” “plan,” or similar words. • earthquake and other natural disaster risks; and These statements discuss future expectations, identify strategies, contain projections of results of • failure of computer telecommunications systems disrupting railway or other operations. operations or of JR-West’s financial condition, or state other forward-looking information. All forward-looking statements in this annual report are made as of September 2018 based on Known or unknown risks, uncertainties, and other factors could cause the actual results to differ information available to JR-West as of September 2018, and JR-West does not undertake to update materially from those contained in any forward-looking statements. JR-West cannot promise that the or revise any of its forward-looking statements or reflect future events or circumstances. expectations expressed in these forward-looking statements will turn out to be correct. JR-West’s Future compensation and other expenses related to the Fukuchiyama Line accident that occurred actual results could be materially different from and worse than expectations. on April 25, 2005 are difficult to estimate reasonably at this time, and so have not been included in Important risks and factors that could cause actual results to be materially different from JR-West’s forecasts. expectations include, but are not limited to: Annual Report 2018 1 Introduction At a Glance Western Japan Joetsumyoko ¥163trillion 42.6 million Toyama GDP Population Nagano Kanazawa Kyoto Tokyo Tsuruga Shin-Kobe (Hyogo) Nagoya Hiroshima Okayama Shin-Osaka Hakata (Fukuoka) Nara Osaka Kumamoto Kagoshima- Chuo JR-West’s railway network covers 18 prefectures in the western half of the island of Honshu and the northern tip of the island of Kyushu, and comprises 20% of Japan’s land area. The area we serve is home to 42.6 million people, about 33% of the country’s population, and has a nominal GDP of ¥163 trillion. Hiroshima JR-West Total route length Number of passengers Hakata (Fukuoka) 5,008.7km 1,913million 2 WEST JAPAN RAILWAY COMPANY Status of Development on the Hokuriku Shinkansen Scheduled to open by March 31, 2023 Under Joetsu construction Shinkansen Joetsumyoko Tourist destination ranking Kanazawa Toyama Joetsumyoko Fukui Toyama Nagano Opened on Prefectures Hokuriku Line October 1, 1997 Tsuruga in the top 20 Nagano 6 Fukui Station overhead viaduct Takasaki portion complete Among the 20 most popular tourist destinations in Japan are Kanazawa six western Japan prefectures, including Osaka and Kyoto. Opened on March 14, 2015 Tokyo Nagoya Visiting Rate by Prefecture (CY2017 Results) Kyoto TokyoOsaka Number of responses: 40,213 Tsuruga Ranking Prefectures Visit rate (%) Shin-Kobe 1 Tokyo 46.2 2 Osaka 38.7 (Hyogo) Nagoya Main Lines in the Kansai Urban Area 3 Chiba 36.0 4 Kyoto 25.9 Hiroshima Okayama Omishiotsu 5 Fukuoka 9.8 Shin-Osaka 6 Aichi 8.9 7 Kanagawa 8.5 Hakata 8 Hokkaido 7.7 (Fukuoka) Maibara 9 Okinawa 7.3 Nara 10 Nara 7.3 Tanigawa 11 Hyogo 5.5 Osaka Yamashina Kusatsu ... Kyoto 15 Hiroshima 3.0 Shin-Osaka Kameyama Aioi Himeji Gray shaded areas are JR-West’s operating area. Source: Japan Tourism Agency Kakogawa Amagasaki Tsuge Shin-Kobe Kyobashi Nara Kumamoto Nishi-Akashi Kobe Tennoji Osaka Oji Takada Kansai Airport Kagoshima- Chuo Wakayama Annual number of foreign visitors was nearly Boundary Stations between JR-West and Other JR Tozai Line (Kyobashi–Amagasaki) JR Companies JR Yumesaki Line (Nishi-Kujo–Sakurajima) Shinkansen Line (Bullet Train) JR Takarazuka Line (Osaka–Sasayamaguchi) Intercity Lines Sagano Line (Kyoto–Sonobe) Regional Lines Gakkentoshi Line (Kyobashi–Kizu) Osaka Loop Line Nara Line (Kyoto–Kizu) JR Kobe Line (Osaka–Himeji) Yamatoji Line (JR-Namba–Kamo) million JR Kyoto Line (Osaka–Kyoto) Hanwa Line (Tennoji–Wakayama) 29 Biwako Line (Kyoto–Nagahama) Kansai Airport Line (Hineno–Kansai Airport) Kosei Line (Yamashina–Omi-Shiotsu) Osaka Higashi Line (Hanaten–Kyuhoji) The number of inbound visitors to Japan was nearly 29 million in CY2017. Osaka Nara Inbound Visitors to Japan (Millions of people) 8.61 2013 10.36 2014 13.41 2015 19.74 2016 24.04 2017 28.69 Kobe (Hyogo) Kyoto 2020 Target 40.00 2030 Target 60.00 Source: Japan National Tourism Organization Annual Report 2018 3 Introduction Overview Operating Revenues Revenues from Third Parties Operating Income (Year ended March 31, 2018) (Year ended March 31, 2018) Total Total ¥1,500.4billion ¥191.3billion Transportation Operations Transportation Operations 63.4% 67.4% Retail Business Retail Business 16.0% 3.8% Real Estate Business Real Estate Business 9.3% 18.5% Other Businesses Other Businesses 11.3% 10.3% Transportation Operations Shinkansen Kansai Urban Area Other Conventional Lines The Shinkansen operated by JR-West consists The Kansai Urban Area provides passenger JR-West’s other conventional lines consist of of the Sanyo Shinkansen, a high-speed intercity transport services to the densely populated limited express trains for intercity transport, passenger service between Shin-Osaka Station cities of Kyoto, Osaka, and Kobe and their local transport for commuting to and from in Osaka City and Hakata Station in Fukuoka surrounding areas. In fiscal 2018, JR-West work or school in such core urban areas as City, the Hokuriku Shinkansen Line, which is served a daily average of 4.2 million passen- Hiroshima and Okayama, and local lines one of the new Shinkansen lines, and the seg- gers in the Kansai Urban Area. through less populated areas. ment between Nagano Station and Kanazawa These passengers were mainly people Station, which opened on March 14, 2015. commuting to and from work or school. Along the Hokuriku Shinkansen Line, JR-West is the operating body for the segment between Joetsumyoko and Kanazawa. History 1987.